Petroleum industry firms are increasingly using decision-analytic (DA) techniques to aid decision making. However, a technical paper recently published in Operations Research highlights the possibility that suboptimal investment decisions are being made by these companies. Consider, for example, a large drilling opportunity, and assume, as these firms often do, a simple two-state model: success and failure. Success corresponds to the discovery of a commercially viable prospect, and the projects' payoff is summarized by an estimate of the net present value that the successful prospect would be expected to produce.
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